- financial crisis - G20 - IMF - London - World Bank
Reuters - G20 finance leaders on Saturday agreed to coordinate a removal of emergency economic packages when recovery takes firm hold but they struggled on the detail of measures to rein in bank pay and lending rules at the root of the recent crisis.
With the global economy looking brighter than it had in April when Group of 20 finance ministers and central bankers last met, the focus shifted from crisis-fighting to figuring out how to establish a safer financial system for the future.
On the public stage, the message was one of solidarity as policymakers agreed they must keep spending the $5 trillion already earmarked as economic stimulus and delay any unwinding of emergency fiscal and monetary measures until economies are sturdy enough to stand on their own.
“We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies, consistent with price stability and long-term fiscal sustainability, until recovery is secured,” said a final statement the Group of 20 ministers from rich and developing countries.
“We agreed need for a transparent and credible process for withdrawing our extraordinary fiscal, monetary and financial sector support as recovery becomes firmly secured,” it said. “Working with the IMF and the FSB (Financial Stability Board) we will develop cooperative and coordinated exit strategies, recognising that the scale, timing and sequencing of actions will vary across countries and across the types of policy measures.”
But behind the scenes, some G20 sources expressed frustration that there was not more progress made in curbing excessive pay packages for bankers—particularly those employed by firms that have received billions of dollars in government support.
“There is broad agreement on what to do. The problem is we need to go beyond agreement. We need to have concrete measures,” said International Monetary Fund chief Dominique Strauss-Kahn. “I’m impressed by the level of consensus but I’m still waiting for strong measures to be decided and also to be implemented at the national level.”
Bank pay and buffers
Much of the public pressure before the meeting had centred on excessive bank remuneration.
“It is offensive to the public whose taxpayers’ money in different ways has helped (keep) many banks from collapsing and is now underpinning their recovery,” British Prime Minister Gordon Brown said at the start of Saturday’s meetings.
Finance leaders broadly agreed that banks ought to hold more capital as a cushion against the sort of catastrophic losses that led to bank failures and bailouts.
The final statement said that banks would “be required to hold more and better quality capital once recovery is assured.”
“We call on banks to retain a greater proportion of profits to build capital where needed,” the statement added.
On bonuses in the financial sector, the statement fell short of calling for caps, saying that: “We also ask the Financial Stability Board to explore possible approaches for limiting total variable remuneration in relation to risk and long-term performance.”
That was seen as a compromise between countries including France and Germany that had pushed hard for pay limits and Britain, the United States and Canada which were opposed to caps.
Changing world order
The statement showed agreement that emerging nations like India and China should have a greater say in the running of the International Monetary Fund and World Bank but did not offer up any formula of how this should be achieved.
It said only that their voice in global economic policymaking would grow “significantly” and that it expected “substantial progress” to be made on the issue at a summit of world leaders in Pittsburgh later this month.
The BRIC group of leading emerging powers—India, China, Russia and Brazil—had laid out on Friday concrete targets for how much movement they wanted in IMF and World Bank quotas.